Moody’s warned that Virgin’s creditors were likely to take a big “haircut” when the proposed restructuring 0f the airline was finalised.
While the revival of the airline is anticipated it is likely to be under a different business model.
The company was forced into administration this week following the COVID-19 shutdown of Australia’s borders meant its $5 billion debt load was unserviceable.
Although most expect the airline will rise from the ashes, its creditors, which include banks, businesses and ticket holders, are likely to be forced to accept a cut in the value of the debt.
And when Virgin is revived its credit ratings will not be strong.
‘The negative outlook reflects our expectation that if the debt restructuring process is completed as anticipated, we expect to lower the issuer credit rating to ‘SD’ (selective default) and the issue rating on the group’s unsecured debt to ‘D’ (default),” S&P said.
“We expect the proposed debt restructuring and recapitalization process to constitute a default under our criteria, because we expect that unsecured debt providers will be forced to accept less value for amounts owing under the terms of the existing unsecured debt facilities.”
Moody’s said the lack of substitutes for air travel in Australia and the duopoly domestic airline market structure supported Virgin’s business profile.
“The key issue for existing creditors will be the haircut they are requested to take in a restructure, relative to the risk of putting the company into liquidation with uncertain recovery prospects,” Moody’s said.
“We expect that a debt restructuring should facilitate a recapitalisation of the company, which should enable Virgin to emerge from the restructuring.”
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